Owen, Christopher: Global Survey – October 2021

15 September 2021, Australian Treasurer Josh Frydenberg said the government would expand Australia’s existing network of 45 bilateral tax treaties by entering into 10 new and updated tax treaties by 2023.

Intended to support the economic recovery, the plan will ensure that Australia’s tax treaty network covers 80% of foreign investment in Australia and about AUD6.3 trillion of Australia’s two-way trade and investment.

Negotiations with India, Luxembourg and Iceland are occurring this year as part of the first phase of the programme. Negotiations with Greece, Portugal and Slovenia are scheduled to occur next year as part of the second phase.

The government said it had provided AUD11.6 million to Treasury and the Australian Tax Office to support the expansion of the tax treaty network in the 2020-21 and 2021-22 Budgets.

20 Sep 2021, the Australian Tax Office (ATO) launched an enforcement drive against residents that fail to declare foreign income in their tax returns and then disguise the character of the funds for repatriation. It issued Taxpayer Alert 2021/2 to warn and deter taxpayers and advisers from entering into such arrangements.

TA 2021/2 concerns arrangements where Australian resident taxpayers fail to declare foreign income in their tax returns and then conceal the character of the funds upon repatriation to Australia, by disguising the funds received as a purported ‘gift’ or ‘loan’ from a related overseas entity.

The related overseas entity may include a family member, friend or a related company or trust. The omitted foreign income may include:

i) Overseas employment or business income

ii) Interest from foreign financial institutions or loans

iii) Dividends from foreign companies

iv) A capital gain on the disposal of a foreign asset (such as shares in a foreign company)

v) Deemed amounts of foreign income in relation to interests in foreign companies or trusts.

In some instances, taxpayers may also inappropriately claim tax deductions for ‘interest’ said to have been incurred on purported ‘loans’ from the related overseas entity.

The ATO said it was reviewing these types of arrangements and actively engaging with taxpayers who have entered such arrangements to ensure that they pay the correct amount of tax. It has published web guidance in relation to documenting genuine gifts or loans from related overseas entities where the funds are used for income producing purposes.

Taxpayers who have not derived any foreign income and have received a genuine gift or loan from a family member overseas should not be concerned. However, those taxpayers deliberately omitting foreign income, concealing their interests in foreign assets or making false claims for deductions in their tax returns, said the ATO, would face substantial penalties, potentially including criminal sanctions.

8 September 2021, the Ministry of Financial Services issued a consultation paper titled ‘Enhancement of the Beneficial Ownership Framework’ and invited public comments on its proposals to reshape Cayman’s beneficial ownership legislation, including creating a single act to make the legislation more effective.

The consultation paper seeks input into government’s proposed changes, including:

i) Creating a single Act for beneficial ownership, in line with other jurisdictions such as the Bahamas, the Isle of Man, Guernsey, Jersey and the BVI.

ii) Including limited partnerships and exempted limited partnerships into the framework.

iii) Requiring additional data reporting, including the nationality of the beneficial owner and the mechanism by which the beneficial owner holds control.

iv) Reducing filing duplications, as much as possible, to make it easier for the financial services industry to file beneficial ownership information with General Registry, which is the competent authority for receiving, maintaining and providing access to the beneficial ownership register.

v) Improving access to beneficial ownership information by other competent authorities and financial institutions, in preparation for public access.

vi) Obligating those accessing beneficial ownership information to inform General Registry of any discrepancies in the information.

The proposals reflect the evolution of international standards, previous industry feedback on the framework’s ease of use, data security, as well as the Cayman government’s commitment to introduce a public beneficial ownership register by 2023, when public registers are expected to become an international regulatory standard.

Three existing Acts – Companies, Limited Liability Companies and Limited Liability Partnership – would be amended under the proposals. Consequential amendments to any other act that references beneficial ownership provisions also would be made.

“This consultation is important, because a strong beneficial ownership framework strengthens our commitment to fight criminality not just locally, but also globally,” said Minister of Financial Services André Ebanks in a statement. “Government’s proposals are therefore intended to place Cayman in an even stronger position with global standards that fight criminal activity, such as money laundering and terrorist financing; and, at the same time, creating a more streamlined and concise legislative act.”

21 September 2021, the Cyprus Tax Authority announced a further extension to the deadline for submission of DAC6 reports without any penalties to the end of 30 November 2021.

The most recent amendment (Directive 2018/822/EU) to the EU Directive on Administrative Cooperation 6 (known as DAC6) in relation to cross-border tax arrangements, came into force on 25 June 2018. It applies to cross-border tax arrangements that meet one or more specified characteristics (hallmarks) and which concern either more than one EU country or an EU country and a non-EU country. It mandates a reporting obligation for these tax arrangements if in scope, no matter whether the arrangement is justified according to national law.

Under DAC 6, reportable cross-border arrangements that were entered into between 25 June 2018 and 30 June 2020, were initially to be reported by 31 August 2020 but, in response to the COVID-19 pandemic, the EU introduced an optional six-month deferral to reporting deadlines. In most EU Member States reportable cross border arrangements therefore had to be reported by 28 February 2021.

In Cyprus, however, DAC6 was not transposed into the Cypriot Law on Administrative Cooperation in the field of Taxation until 31 March 2021. Because of the delay in transposition, certain deadlines under the Directive had already expired. Initially the Cyprus tax authorities announced that no penalties would be imposed for all filings made by 30 June 2021 in respect of arrangements with a triggering event between 25 June 2018 and 31 May 2021. Arrangements from 1 June 2021 were to be reported within 30 days of the relevant triggering event.

This filing deadline was subsequently shifted to 30 September 2021 and now, with the latest announcement, to the end of 30 November. No penalties will be imposed for all filings submitted by the end of 30 November 2021 in respect of arrangements with a triggering event between 25 June 2018 and 31 October 2021. Arrangements with a triggering event from 1 November 2021 onwards need to be reported within 30 days of the relevant triggering event.

6 September 2021, the Cyprus Ministry of Finance issued a draft law regulating matters relating to distributed ledger technology (DLT), including blockchain, for public consultation. The aim is to facilitate the application of DLT, applying the principle of technological neutrality and promoting innovation, while at the same time meeting international regulatory standards and providing adequate protections for investors and consumers.

The Cypriot Council of Ministers approved a National Strategy for DLT & Blockchain in June 2019, which set out that the Ministry of Finance, in cooperation with the Tax Department and Registrar of Companies, should coordinate the drafting of a regulatory framework based on principles set out in the strategy.

The draft DLT Law 2021 is based on the provisions of this National Strategy and seeks to provide for: the definitions for DLT and crypto assets; legal certainty in respect of smart contracts and cryptocurrencies as an asset; and authorising the Cyprus Securities & Exchange Commission (CySEC) as the competent authority to issue secondary legislation within the framework of its responsibilities for the supervision of cryptocurrency service providers.

As part of the consultation the Ministry of Finance, in seeking feedback from stakeholders and market participants on the shape and scope of effective regulations and procedures.

On 13 September, CySEC issued a Policy Statement on the Registration and Operations of Crypto Asset Services Providers (CASPs) to outline its finalised rules for CASPs under the Prevention & Suppression of Money Laundering & Terrorist Financing Law of 2007 and related CySEC Directives, elaborating on the next steps and on CySEC’s expectations.

CASP is a concept that was introduced in Cyprus via the transposition of the EU’s 5th Anti-Money Laundering Directive into national law in June, which extended anti-money laundering controls to: providers of exchange services between virtual currencies and fiat currencies (Exchange Providers); and providers of custody services for virtual currencies (Custody Providers).

EU Member States are required to ensure that both Exchange Providers and Custody Providers are registered and that persons who hold management functions or are beneficial owners of providers are fit and proper.

Accordingly, CASPs that provide or exercise services or activities on a professional basis in Cyprus, regardless of their registration to another EU Member State, will need to be registered on the CySEC Register and will need to comply with any registration, organisational and functional requirements and with any other obligations established by CySEC.

Depending on the structure of a business, the crypto assets will either qualify as financial instruments under the Investment Services & Activities & Regulated Markets Law or as Electronic Money under the Electronic Money Law. Additionally, crypto assets can be a digital representation of value that is neither issued nor guaranteed by a central bank or a public authority.

CASPs will also be required to align their businesses with anti-money laundering rules, which will impose obligations on the fitness and probity of the CASP beneficial owners and persons holding a management position, the conditions in relation to a CASPs registration and organisational and operational requirements.

These will include performing Know Your Client and other client due diligence measures, such as economic profile, identifying the source of funds, monitoring clients’ transactions, and reporting suspicious transactions. CASPs will be required to undertake a comprehensive risk assessment in relation to their clients and activities and take proportionate measures per client, activity, and crypto asset in question.

CySEC expects this initiative to alleviate some, but not all, of the risks involved in crypto asset investments, which are expected to be further addressed at EU level under the proposed Regulation on Markets in Crypto Assets. CySEC will now begin to evaluate applications from existing or prospective CASPs.

CySEC chair Demetra Kalogerou said: “Our proactive engagement with crypto businesses under the CySEC Innovation Hub, aiming to support innovative businesses and to engage with providers of emerging financial technologies, ensured that our expectations were clearly communicated to market participants well in advance and that the Cypriot framework has captured the industry’s pace, alleviating thus the risks involved. Our work on financial innovation at national and EU level is ongoing and we are determined to encourage responsible innovation, whilst ensuring the orderly functioning of the markets.”

16 September 2021, the Court of Justice of the European Union set aside a 2019 decision of the General Court and held instead that the European Commission had correctly found that tax exemptions granted by Belgium to multinational companies by way of rulings did constitute an aid scheme.

In Commission v Belgium and Magnetrol International C-337/19 P, Belgium applied a system of exemptions from corporate income tax for the excess profit of Belgian entities that formed part of multinational corporate groups. Profits regarded as being ‘excess’ because they exceeded the profit that would have been made by comparable standalone entities operating in similar circumstances.

From 2005, such entities were able to obtain a tax ruling from the Belgian tax authorities granting the exemption if they could demonstrate the existence of a new situation, such as a reorganisation leading to the relocation of the central entrepreneur to Belgium, the creation of jobs or investments.

In 2016, the Commission determined that this system of excess profit exemptions constituted a State aid scheme that was unlawful and incompatible with the internal market (Decision (EU) 2016/1699 of 11 January 2016). It ordered the recovery of the aid granted to 55 beneficiaries, including the company Magnetrol International. Belgium and Magnetrol International brought an action before the General Court of the European Union seeking annulment of the Commission’s decision.

In February 2019, the General Court annulled the Commission’s decision. It found, inter alia, the Commission had wrongly concluded that the excess profit exemption scheme did not require further implementing measures and it therefore constituted an ‘aid scheme’ within the meaning of Regulation 2015/1589. It also rejected the Commission’s arguments relating to the existence of an alleged ‘systematic approach’ by the Belgian tax authorities.

In April 2019, the Commission appealed to the Court of Justice (ECJ) claiming the General Court had made errors in its interpretation of the definition of an ‘aid scheme’.

The ECJ noted that three cumulative conditions had to be satisfied for a state measure to be classified as an aid scheme. First, aid should be granted individually to undertakings on the basis of an act. Secondly, no further implementing measure was required for that aid to be granted. Thirdly, undertakings to which individual aid might be granted should be defined ‘in a general and abstract manner’.

In respect of the first condition for defining an ‘aid scheme’, the ECJ clarified the concept of an ‘act’. It confirmed that the term might also refer to a consistent administrative practice by the authorities of a Member State where that practice revealed a ‘systematic approach’.

Although the General Court found that the legal basis of the scheme at issue resulted not only from a provision of the Income Tax Code 1992, but also from the application of that provision by the Belgian tax authorities, it did not, however, draw all the appropriate conclusions from that finding. It did not take account of the fact that the Commission inferred the application of that provision not only from certain acts, but also from a systematic approach on the part of those authorities.

The General Court did, however, rely on the incorrect premise that the fact that certain key facts of the scheme at issue were not apparent from those acts, but from the rulings themselves, meant that those acts necessarily had to be the subject of further implementing measures. By limiting its analysis, it therefore misapplied the term ‘act’.

In respect of the second condition – that no ‘further implementing measures’ were required ­– the ECJ noted that this was intrinsically linked to the determination of the ‘act’ on which that scheme was based.

In this context, the General Court had failed to take account of the fact that the Belgian tax authorities had systematically granted the excess profit exemption when the conditions were satisfied. The identification of such a systematic practice could constitute a relevant factor in order to establish, where applicable, that the tax authorities did not in fact have any discretion.

In respect of the third condition – that the beneficiaries of the excess profit exemption were defined ‘in a general and abstract manner’ – the ECJ noted that this issue was also intrinsically linked to the first two conditions. Accordingly, the errors of law made by the General Court concerning the first two conditions vitiated its assessment of the definition of the beneficiaries of the excess profit exemption.

The ECJ therefore concluded that the General Court had made several errors of law. It also found that the sample of rulings examined by the Commission (22 selected in a weighted manner from a total of 66) was, by its nature, capable of representing a ‘systematic approach’ taken by the Belgian tax authorities.

The ECJ therefore set aside the judgment of the General Court but found that the state of the proceedings did not permit final judgment to be given in respect of the pleas alleging, in essence, the incorrect classification of the excess profit exemption as State aid. It therefore referred the case back to the General Court for it to rule on those aspects of the case.

The full text of the ECJ judgment can be accessed at https://curia.europa.eu/jcms/upload/docs/application/pdf/2021-09/cp210158en.pdf

6 September 2021, a report published by the EU Tax Observatory found that Europe’s biggest 36 banks book an average of €20 billion ($23.7 billion) in tax havens every year, accounting for 14% of their total profits. This percentage has been stable since 2014.

The report investigated the activities of 36 systemic European banks, headquartered in 11 countries, that have been subject to mandatory country-by-country reporting under the EU Capital Requirements Directive 4 since 2015.

The report identified a country as a tax haven if it combined an effective tax rate on bank profits of 15% or less, and a very high rate of profitability per employee. On average, annual profits in tax havens are around €238,000 per employee, compared to around €65,000 in other European countries, suggesting that many of the profits booked in tax havens had been transferred out of other countries where the services had been produced.

The 17 jurisdictions included in the report’s tax haven list comprised: the Bahamas, Bermuda, the BVI, the Cayman Islands, Guernsey, Gibraltar, Hong Kong, Ireland, the Isle of Man, Jersey, Kuwait, Luxembourg, Macao, Malta, Mauritius, Panama and Qatar.

The report noted that about 65% of banks’ profits were reported as being made abroad through affiliates between 2014 and 2020, with researchers documenting a misalignment between the countries where profits were booked and those where employees were located.

The report noted that the use of tax havens varied considerably from bank to bank, ranging from 0% to a maximum of 58%. The average percentage of profits booked in tax havens per bank was around 20%. While the amount of profits present in tax havens remained constant over the period, the study observed a decrease in the number of subsidiaries of the banks in tax havens since 2014.

Using the country-by-country data, the researchers estimated the amount the banks would have to pay if the global minimum tax rate currently being negotiated through the Organisation for Economic Co-operation and Development (OECD) were applied.

If the rate were 15%, the 11 countries hosting the parent companies of the 36 banks would recover between €3 billion and €5 billion per year; €6 billion to €9 billion if the rate was increased to 21% and up to €10 billion to €13 billion if the rate was increased to 25%.

The main countries that would benefit would be the UK and France. If the 15% minimum tax rate were to be retained, that would represent between €800 million and €1,500 million additional taxes per year for the UK and between €350 million and €500 million additional taxes per year for France.

The mean effective tax rate paid by the banks in the report’s sample was 20%, ranging from 10% to 30%. Seven banks, it said “exhibit a particularly low effective tax rate” of 15% or less: RBS, Barclays, Bayern LB, Nord LB, HSBC, KBC and Intesa Sanpaolo.

The EU Tax Observatory is an independent research laboratory hosted by the Paris School of Economics. It receives funding from the EU, but Its publications do not reflect the views of the European Commission.

28 September 2021, the European Council adopted its position at first reading on the proposed directive on the disclosure of income tax information by certain undertakings and branches, commonly referred to as the public country-by-country reporting (CBCR) directive, paving the way for its final adoption.

The Council had reached a provisional agreement with the European Parliament on the proposed CBCR directive on 1 June, some five years after the it was first tabled as part of the European Commission action plan for a fairer corporate tax system.

The reporting requirement would apply to certain multinationals with total consolidated revenues of €750 million (approx. USD875 million), regardless of whether they are based in the EU. Such multinationals operating in more than one country in the EU would be required to publicly disclose income tax information on a country-by-country basis for EU member states and for non-EU jurisdictions on the EU’s “blacklist” and “grey list”.

Zdravko Počivalšek, Slovenian minister for Economic Development and Technology, said: “Transparency is essential for the smooth functioning of the internal market, and I am pleased that we have stepped up our ambition for tax transparency. For the first time, non-European multinationals doing business in the EU through subsidiaries and branches will also have to comply with the same reporting obligations as EU multinational undertakings.”

The European Parliament adopted its position at first reading on 27 March 2019. Negotiations between the co-legislators started in March 2021 and resulted in a provisional agreement on 1 June, with points such as the transition period and the safeguard clause being finalised.

The next step before the CBCR directive can enter into force is the formal approval of the provisional agreement by the European Parliament. The CBCR directive will enter into force on the 20th day following its publication in the Official Journal of the European Union. Member states will have 18 months from the entry into force of the directive to transpose it into national law.

The reporting will take place within 12 months of the date of the balance sheet for the financial year in question. The CBCR directive sets out the conditions under which a company may defer the disclosure of certain information for a maximum of five years. The CBCR directive also stipulates who bears responsibility for ensuring compliance with the reporting obligation.

17 August 2021, the Federal Tribunal in Lausanne ordered CHF125 million (USD136 million) to be held as collateral in a claim for unpaid taxes by the city and canton of Geneva from Indian Swiss billionaire Prakash Hinduja.

Hinduja, who acquired Swiss citizenship in 2000 along with his wife, is accused of falsely claiming residence in Monaco to avoid paying Swiss taxes while he was allegedly living with his family in Cologny, a suburb of Geneva.

According to a report in Swiss newspaper 24 heures, an investigation in 2018 into the mistreatment and underpayment of household staff alerted the prosecutor to Hinduja’s residency status. The prosecutor informed the tax authorities that Hinduja still resided in Geneva, despite claiming to have been resident in Monaco since 2007.

In May 2019, Swiss tax authorities raided the villa in Geneva and seized documents and computers. It is also alleged that Hinduja lowered his tax liability in Switzerland by failing to disclose payments from a trust in the Isle of Man. It is estimated that Hinduja evaded taxes on CHF19 million in income and at least CHF1 billion in assets between 2009 and 2017.

Back taxes, interest and other fines are estimated at CHF154 million in municipal and cantonal taxes, as well as CHF3.4 million in federal tax. The case is now on hold pending the progress of the criminal investigation and the presumption of innocence applies.

Forbes ranks the Hinduja family – Prakash and his three brothers Srichand, Gopichand and Ashok – as the 133rd-richest in the world with a combined fortune estimated at USD15.3 billion. The brothers are currently involved in a legal dispute over the ownership of Hinduja Bank (Switzerland), which is headquartered in Geneva and has branches in Lucerne, Lugano and Zurich.

14 September 2021, the Guernsey Revenue Service published Bulletin 2021/5 setting out enhanced strategies for compliance under the Income Tax (Guernsey) (Amendment) Ordinance 2021, which was approved by the Guernsey parliament on 15 July.

One of the key purposes of the Ordinance was to strengthen Guernsey’s framework for automatic exchange of information for tax purposes (AEOI) under the OECD's common reporting standard (CRS) and the US Foreign Account Taxes Compliance Act (FATCA).

Now that Guernsey is into its fifth annual cycle of information exchange under AEOI, it is moving to the next phase of the implementation process by enhancing the Revenue Service's ability to monitor and audit compliance within the finance industry.

Both the CRS and FATCA regimes require Guernsey financial institutions (FIs) to undertake due diligence procedures that are designed to determine whether the holder of a financial account is a ‘reportable person’ – a person who is tax resident in a foreign jurisdiction with which Guernsey has agreed to exchange information.

Where a FI is unable to obtain a valid self-certification under the CRS/FATCA regime, or having obtained a self-certification, has reasonable grounds to suspect that the self-certification is or has subsequently become incorrect or unreliable, the FI must immediately notify the Revenue Service.

On receipt of such a notification, the Revenue Service has the power to require the FI to provide further information and documents or to make further enquiries. Where appropriate, the Revenue Service can issue a freezing order prohibiting the FI from making any transfer, withdrawal or payment from, or otherwise dealing with, the account, except under the authority of, and in accordance with, the prior written permission of the Director of the Revenue Service. Any interest or increment accruing to the frozen account will be frozen and added to the account on its release.

The introduction of this additional power is intended to support FIs and their efforts to obtain full and accurate self-certifications from account holders. It is understood that the notification obligation will be enforced from January 2022 and further information regarding how notice can be given and what information will be required by the Revenue Service, will be published in December 2021.

Previously, only FIs that have CRS and / or FATCA reporting obligations were required to register on the Revenue Service's online reporting system, the Information Gateway Online Reporter (IGOR). This obligation is now extended to all FIs, whether they have a reporting obligation or not, to capture those FIs that have not registered because they have been classified as non-reporting FIs or so-called ‘Ghost FIs’ that they have simply failed to engage with the reporting system.

It is understood that Revenue Service is currently updating its IGOR system and the intention is for the enhanced registration process to commence no earlier than 2022, with the deadline for registration being 28 February 2022.

The Ordinance also introduces amendments to enable the Revenue Service to conduct on-site visits at the business premises of FIs to review relevant records in situ and discuss any immediately identified concerns. The amendments provide a legislative basis for the Revenue Service to carry out such site visits with seven days' written notice.

If serious failings in compliance are discovered, the amendments provide for the Director of the Revenue Service to issue directions to non-compliant FIs to secure compliance and to appoint inspectors to investigate and oversee the remediation of any significant failings. The costs, fees and expenses of an investigation and report by an inspector will be met by the FI under investigation.

As part of the new compliance measures, new regulations were brought into operation on 29 April to apply enhanced sanctions for failure to comply with CRS and FATCA obligations. These regulations increase daily penalties for failure to submit either a CRS or FATCA report by the due deadline and introduce a new basis for calculating penalties in the case of failure due to negligence or fraud.

The increased daily penalty of up to £1,000 per day will apply where there has been 30 days of continual failure, following the imposition of an initial penalty of £300 and daily penalties of £50, to submit a report by the reporting deadline, which is set at 30 June of each year.

Where CRS or FATCA reports have been found to be incorrect or incomplete owing to negligence or fraud, a penalty calculated by reference to the value of the account(s) affected may be applied. In the case of negligence, the maximum penalty will be 0.5% of the balance or value of the account(s); in the case of fraud, the maximum penalty will be 1% of the balance or value of the account(s) to which the failure relates.

31 August 2021, the Hong Kong Legislative Council approved subsidiary legislation under the Companies Ordinance (Cap. 622) to implement a restricted disclosure regime in respect of the usual residential addresses (URAs) and personal identification numbers (IDNs) of directors and company secretaries of companies on the Hong Kong Companies Registry.

Currently directors and company secretaries of companies incorporated in Hong Kong (and registered non-Hong Kong companies) are required to state their residential addresses ID numbers in filings with the Companies Registry. This personal data can then be obtained by the public by accessing filings in person or via an online standard company search.

In light of concerns over personal privacy, the new regime seeks to strike a reasonable balance between satisfying the public need to access information and the protection of privacy of directors and company secretaries.

Under the Companies (Residential Addresses & Identification Numbers) Regulation (L.N. 98 of 2021), the full URAs and IDNs of company board members will be made available only to 'specified persons' and not the public. The publicly available registers will show only the correspondence addresses and partial IDNs of directors and company secretaries.

'Specified persons' include any public officer of any public body, member of the company, solicitor or accountant, financial institution or non-financial institution subject to anti-money laundering regulations, or any person who needs the confidential information for their 'statutory functions’. Creditors or other parties with 'sufficient interest' can also apply for a court order for disclosure of the confidential information.

The new rules apply immediately to the internal registers of directors held by companies. From October 2022, protected information held on the central register for public inspection will be replaced with directors' correspondence addresses and partial IDNs. From December 2023, any board member can apply to have information already filed with the company register replaced with correspondence addresses and partial IDNs.

15 September 2021, the Securities & Futures Commission (SFC) released consultation conclusions on proposed amendments to its anti-money laundering and counter-financing of terrorism (AML/CFT) guidelines to align them with the Financial Action Task Force’s (FATF) standards.

While the proposals received broad support, the SFC said it received a considerable number of comments on the FATF requirements for cross-border correspondent relationships, which require financial institutions to apply additional due diligence and risk mitigating measures for business relationships in the securities sector that are similar to cross-border correspondent banking relationships.

In response, the SFC has revised guidelines to provide greater clarity and additional flexibility in meeting the requirements. For example, the SFC has provided a streamlined approach for cross-border correspondent relationships with affiliated companies. Firms may apply additional due diligence and risk mitigating measures by assessing whether the group policy and AML/CFT programme that apply to an affiliated company are in line with the FATF standards.

“As a global equities trading centre, our regulated firms in Hong Kong execute trades for overseas brokers in major financial hubs around the world,” said Julia Leung, SFC Deputy Chief Executive and Executive Director of Intermediaries. “The amendments provide guidance to firms in assessing and managing the risks of cross-border correspondent relationships more effectively.”

The revised AML/CFT guidelines became effective when gazetted on 30 September 2021, apart from the new cross-border correspondent relationships requirements, which will take effect on 30 March 2022. The SFC said it had provided a six-month transition period from the date of gazettal because firms would need time to implement appropriate policies, procedures and controls.

20 September 2021, the High Court of Kenya in Machakos ruled that minimum tax provisions in section 12D of the Kenya Income Tax Act (KITA) to be unconstitutional and barred the Kenya Revenue Authority (KRA) from implementing them.

The Finance Act 2020 introduced the minimum tax, effective 1 January 2021, with a rate of 1% of gross turnover. The minimum tax is payable when the amount of a taxpayer’s instalment tax payable is less than the amount of the minimum tax.

To prevent the implementation of the tax, several interested parties filed a petition at the High Court challenging the constitutionality of tax provisions and its guidelines. In April, the day before the first tax payment would have been due, the High Court issued orders restraining the KRA from implementation, administration and/or enforcement of Section 12D of the KITA pending the hearing and determination of the case.

In making its final determination, the High Court held that the legislative amendments introduced in Section 12D of the KITA violated the principle of fair treatment in Article 201(b)(i) of the Constitution, particularly in respect of businesses in a loss-making position.

The High Court also made the determination that failure by the respondents to comply with public participation requirements in line with the provisions of the Statutory Instruments Act rendered the minimum tax guidelines null and void.

The KRA indicated that it disagrees with the finding of the High Court and plans to challenge the decision at the Court of Appeal.

9 September 2021, the Maltese government presented the Financial Action Task Force (FATF) with an action plan to secure its removal from the ‘grey list’ of jurisdictions subject to increased monitoring during a virtual meeting.

The FATF announced in June that it was adding Malta to its ‘grey list’, reflecting significant deficiencies in Malta’s anti-money laundering and funding of terrorism framework (ALM/CFT), along with Haiti, the Philippines and South Sudan. Malta is the first EU Member State to appear on the list.

When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.

The action plan was drawn up by Malta National Coordination Committee, which is chaired by Alfred Camilleri, the permanent secretary at the finance ministry, and includes the heads of the island's main regulatory and law enforcement entities in the financial sector.

Since the adoption of its FATF Mutual Evaluation Report in July 2019, the FATF said Malta had made progress on a number of the Report’s recommended actions to improve its system, such as:

i) Strengthening the risk-based approach to Financial Institution (FI) and Designated Non-Financial Businesses and Professions (DNFBP) supervision.

ii) Improving the analytical process for financial intelligence.

iii) Resourcing the police and empowering prosecutors to investigate and charge complex money laundering in line with Malta’s risk profile.

iv) Introducing a national confiscation policy as well as passing a non-conviction-based confiscation law.

v) Raising sanctions available for the crime of Terrorist Financing (TF) and capability to investigate cross-border cash movements for potential TF activity.

vi) Increasing outreach and immediate communication to reporting entities on targeted financial sanctions and improving the TF risk understanding of the Non-Profit Organisation (NPO) sector.

However, FATF president Marcus Pleyer said that lack of transparency on ultimate beneficial owners of companies and weak financial intelligence on tax crimes were the main “serious strategic deficiencies” that led Malta to the grey list.

“It is crucial for Malta to make sure that systems are in place which are strong enough to address money-laundering and terrorist financing and serious organised crime,” he added.

In May 2021, the Council of Europe’s anti-money laundering body (MONEYVAL) identified substantial progress in technical compliance regarding previously identified deficiencies but “failed nine of eleven of its objectives in terms of effectiveness”.

Following the grey-listing, Malta has made a high-level political commitment to work with the FATF and MONEYVAL to strengthen the effectiveness of its AML/CFT regime and to implement its FATF action plan by:

i) Continuing to demonstrate that beneficial ownership information is accurate and that, where appropriate, effective, proportionate and dissuasive sanctions, commensurate with the ML/TF risks, are applied to legal persons if information provided is found to be inaccurate and to gatekeepers when they do not comply with their obligations to obtain accurate and up-to-date beneficial ownership information.

ii) Enhancing the use of financial intelligence by the government's Financial Intelligence Analysis Unit (FIAU) to support authorities pursuing criminal tax and related money laundering cases, including by clarifying the roles and responsibilities of the Commissioner for Revenue and the FIAU.

iii) Increasing the focus of the FIAU’s analysis on these types of offences, to produce intelligence that helps Maltese law enforcement detect and investigate cases in line with Malta’s identified ML risks related to tax evasion.

While the FATF does not itself require enhanced due diligence (EDD) when dealing with individuals and entities from grey-listed countries, certain countries may specify that firms take appropriate actions to minimise the associated risks when dealing with such grey-listed countries.

30 September 2021, Namibia signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), becoming the 96th jurisdiction to join the Convention, which now covers around 1,800 bilateral tax treaties.

The Convention, negotiated by more than 100 countries and jurisdictions under a mandate from the G20 Finance Ministers and Central Bank Governors as part of the OECD/G20 BEPS Project, is the primary instrument for updating bilateral tax treaties and reducing opportunities for tax avoidance by multinational enterprises.

Measures included in the MLI address treaty abuse, strategies to avoid the creation of a ‘permanent establishment’ and hybrid mismatch arrangements. The Convention also enhances the dispute resolution mechanism, especially through the addition of an optional provision on mandatory binding arbitration, which has been taken up by 32 jurisdictions.

Andorra and Spain deposited their instruments of ratification for the MLI on 29 September and these will enter into force on 1 January 2022. It brings the number of jurisdictions that have now ratified, accepted or approved the MLI, which became effective on 1 January 2021, to 67 covering approximately 650 treaties. An additional 1,200 treaties will be effectively modified when MLI has been ratified by all signatories.

28 September 2021, Rwanda committed to implement the international Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEOI) by 2024, becoming the 120th member ­of the Global Forum on Transparency and Exchange of Information for Tax Purposes – and the ninth African country – to commit to start AEOI by a specific date.

Rwanda’s commitment followed that of Moldova (23/09/2021) and Ukraine (30/08/2021), which means that nearly three-quarters of Global Forum members are now committed to start automatic exchange by a specific date.

Algeria became the 163rd member of the Global Forum on 1 September and will participate on an equal footing and is committed to combatting tax evasion through the implementation of the internationally agreed standards of transparency and exchange of information for tax purposes. Members of the Global Forum include all G20 countries, all OECD members, all international financial centres and a large number of developing countries.

"We are delighted to welcome Algeria as the latest Global Forum member," said Global Forum chair Maria José Garde. "The regular extension of the Forum's membership highlights the importance placed by the international community on tax transparency and the resolve of governments to come together to fight and prevent tax evasion and avoidance."

The Global Forum is a multilateral body mandated to ensure that jurisdictions around the world adhere to and effectively implement both the exchange of information on request standard and the standard of automatic exchange of information. Members are subjected to a robust monitoring and peer review process.

As a member of the Global Forum, Algeria will also participate in the Africa Initiative, a programme of work launched in 2014 to support domestic revenue mobilisation and the fight against illicit financial flows in Africa through enhanced tax transparency and exchange of information.

1 September 2021, officials from the South African Revenue Services and the National Treasury held preliminary hearings with the Parliament Standing Committee on Finance to discuss proposed revisions to South Africa's current tax treaties with Eswatini (previously Swaziland), Germany and Switzerland.

The revisions are intended to improve the exchange of information under the treaties and reduce opportunities for tax avoidance by adopting the tax treaty related measures to prevent Base Erosion and Profit Shifting (BEPS). Negotiations for amending protocols with the three countries have been ongoing.

28 September 2021, the US Attorney’s Office for the Southern District of New York unsealed charges against six executives and a Swiss financial services company for conspiracy to defraud the IRS by helping three large-value US taxpayer-clients conceal more than USD60 million in income and assets held in undeclared, offshore bank accounts and to evade US income taxes.

Zurich-based Allied Finance Trust AG and two of its executives, Bernhard Lampert and Rolf Schnellmann, conceived the scheme and oversaw the funds. Three IHAG Privatbank bankers, including former compliance head Ivo Bechtiger and Daniel Walchli, were also indicted, although the Zurich-based bank was not itself charged.

IHAG relationship manager Peter Ruegg was arrested in Spain last month, prosecutors said. A sixth individual, Roderic Sage, was charged with acting as the chief executive of a Hong Kong firm that created shell entities used to hide the taxpayer’s identities.

According to the indictment, from 2009 to 2014, the defendants and others allegedly devised and used a scheme called the ‘Singapore Solution’ to transfer more than USD60 million from the undeclared IHAG bank accounts of the three US clients through a series of nominee bank accounts in Hong Kong and other locations before returning the funds to newly opened accounts at IHAG, ostensibly held in the name of a Singapore-based asset manager.

The US clients allegedly paid large fees to IHAG and others to help them conceal their funds and assets. If convicted, the defendants face a maximum penalty of five years in prison, supervised release, and monetary penalties, while the corporate defendant faces monetary penalties.

“As alleged, the individual defendants and the Swiss firm Allied Finance conspired to defraud the IRS by assisting US taxpayers in avoiding their tax obligations,” said US Attorney Audrey Strauss for the Southern District of New York. “They allegedly did this through an elaborate scheme that involved concealing customer assets at a Swiss private bank through nominee bank accounts in Hong Kong and elsewhere, with funds returning to the private bank in the name of a Singapore firm. One such US customer, Wayne Chinn, pleaded guilty to his participation in the so-called ‘Singapore Solution,’ forfeited more than USD2 million to the United States, and awaits sentencing for his admitted crime.”

According to court documents filed in relation to his guilty plea, Chinn concealed approximately USD5 million in undisclosed and untaxed income from 2001 to 2018. During this period, he held accounts in nominee names at IHAG Privatbank. Beginning in 2010, Chinn wired funds from these offshore accounts through nominee accounts in Hong Kong before returning them to newly opened accounts at IHAG held in the name of a Singapore-based trust company acting on behalf of two foundations created to conceal Chinn’s ownership of the accounts. He subsequently transferred the funds out of Switzerland to undeclared accounts in Singapore. Chinn did not file any tax returns or disclose his foreign bank accounts during the years at issue.

Chinn pleaded guilty to one count of tax evasion which carries a maximum penalty of five years in prison. Chinn also consented to the civil forfeiture of 83% of the funds held in five accounts at two Singapore banks, which resulted in the successful forfeiture and repatriation to the US of approximately $2.2 million. The civil forfeiture proceeding is USA v. Certain Funds on Deposit in Various Accounts, 20 Civ. 3397 (LJL). Chinn is scheduled to be sentenced on 19 November.

The bulk of the concealed assets cited in the case by prosecutors, almost USD49 million, belonged to a Manhattan hedge fund manager identified in the indictment as ‘Client-1’. The account had actually been created by Client-1’s father in the 1960s and passed to Client-1 upon the father’s death. Client-1’s family accessed the funds through biannual trips to Zurich, where they would withdraw hundreds of thousands of dollars in cash and carry or mail it back to the US.

Prosecutors said Client-1’s funds were held in the name of a Liechtenstein foundation to conceal the connection to his family, and that his account also held shares in a “relatively illiquid” hedge fund that he operated.